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December in Washington DC Is Critical to the Future of Wind, Solar

Coming into December 2017, the U.S. government is still wrangling with many important decisions that could have far-reaching consequences for the future of renewable energy in the nation, specifically in the solar and wind arenas. Other countries have stepped up their investment in these renewable sources of energy, but many government leaders campaigned on promises of oversight and reduction of expenditures.

Some have even doubled-down on altering credits for green energy. Those promises threaten to shake up and possibly stall the rapid expansion seen over the last decade if further changes are made to the Business Energy Investment Tax Credit (ITC) or the way taxes are handled on investments under the credit.

What’s at Stake?

Confusion over a lack of guidance from the IRS has led to concerns over investment in further solar development. The solar investment tax credit is set to be phased down from a current 30 percent on both commercial and residential installations to 10 percent and 0 percent, respectively, over time. The draw-down of the tax credit for wind faces challenges including new guidelines and implementation rules that could see as many as half of the new projects underway reapplying and possibly becoming financially unfeasible.

Where’s the Threat?

According to Tom Kiernan, CEO of the American Wind Energy Association:

“Wind energy went first on tax reform, voluntarily agreeing to a phase-out to give the industry time to adjust. … Every day that goes by until this flawed House language is fixed reduces business for American workers and factories.”

The quote from the AWEA directly addresses changes in the United States House of Representatives that would alter the way companies qualify for tax credits for investment or production of wind energy. The association notes that this could result in loss of jobs and potential financial default, as companies have already agreed to contracts based on the previous rules for qualification and set budgets based on the credits as they stand. Solar energy advocates are closely watching the wind debate, as there is a chance of the changes possibly slowing or even grinding to a halt the extraordinary growth of solar energy in the last few years.

Who Supports the Changes?

Major supporters of the changes include Republican leaders in Congress looking to impose a minimum 10 percent tax on taxable income through a provision known as the Base Erosion Anti-Abuse Tax (BEAT). While this provision is aimed primarily at companies that use “earning strippings” to move funds overseas and deduct them against domestic taxes, supporters have included no provisions for exempting the ITC or credits for manufacturing storage for renewable energy from the BEAT.

When Does It Take Effect?

If the GOP tax bills pass, many changes could take effect as soon as the start of 2018, potentially even sooner on some retroactive effects to existing wind and solar incentives. Other tax credit changes have gone through without sweeping legislation, so it’s always possible this change could even sneak in as an executive decision. Without IRS guidance, it remains to be seen if any changes would apply to solar as well as wind or if separate rulings are required. Each day that the Senate and House bills become closer to passing is one day sooner that companies will have to wrangle with the new provision and one less day for providing input on the proposed tax laws.

How Does the U.S. Compare Worldwide?

The ITC has been changed multiple times, most recently with the Consolidated Appropriations Act of 2015, which kept the credit in place but added a phasing out of the value for PTC-eligible wind and solar developments. This is occurring as other nations continue ramping up their investments in the arena, potentially leaving the U.S. lagging behind. China has quickly become a renewable energy leader, with India close on its heels. The key to this seems to be China funding new startups at an exceptional pace and offering tax credits that offset taxable income entirely for renewable energy companies moving to the nation.

Lead image credit: CC0 Creative Commons | Pixabay